SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1999
Commission file number 0-10822
BIOCONTROL TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1229323
(State of other jurisdiction (IRS Employer
of incorporation or organization) Identification no.)
300 Indian Springs Road, Indiana, Pennsylvania 15701
(Address of principal executive offices) (Zip Code)
(412) 349-1811
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
As of June 30, 1999, 648,671,008 shares of Biocontrol
Technology, Inc. common stock, par value $.10 were
outstanding.
<PAGE>1
<TABLE>
Biocontrol Technology, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
Jun. 30, 1999 Dec. 31, 1998
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 10,336,030 $ 125,745
Accounts receivable - net of allowance for doubtful accounts 76,429 55,959
Inventory - net of valuation allowance 570 74,515
Prepaid expenses 149,441 170,544
------------ -------------
TOTAL CURRENT ASSETS 10,562,470 426,763
PROPERTY, PLANT AND EQUIPMENT
Building 1,207,610 1,429,906
Land 133,750 133,750
Construction in progress 0 0
Leasehold improvements 1,477,573 1,477,573
Machinery and equipment 4,809,809 5,014,103
Furniture, fixtures & equipment 831,072 794,740
------------- -------------
Subtotal 8,459,814 8,850,072
Less accumulated depreciation 4,432,918 4,244,650
------------- -------------
4,026,896 4,605,422
OTHER ASSETS
Related Party Receivables
Notes receivable - related parties 1,567,649 1,223,900
Interest receivable - related parties 19,893 155,628
Advances-Officers 0 90,779
------------- -------------
1,587,542 1,470,307
Allowance for related party receivables (1,250,504) (1,270,307)
------------- ------------
337,038 200,000
Notes receivable 12,000 142,493
Interest receivable 3,705 19,778
Goodwill, net of amortization 1,892,374 4,423,421
Deposit on equipment 45,547 0
Patents, net of amortization 267 2,433
Other assets 350,000 15,259
------------- -------------
2,303,893 4,603,384
------------- -------------
TOTAL ASSETS $ 17,230,297 $ 9,835,569
============= =============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>2
<TABLE>
Biocontrol Technology, Inc. and Subsidiaries
Consolidated Balance Sheets
(Continued)
<CAPTION>
Jun. 30, 1999 Dec. 31, 1998
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 529,200 $ 1,750,188
Current portion of long-term debt 4,108,620 4,552,178
Current portion of capital lease obligations 70,925 99,061
Debentures payable 10,575,000 2,825,000
Accrued liabilities 578,134 1,096,644
Escrow payable 2,700 2,700
------------- -------------
TOTAL CURRENT LIABILITIES 15,864,579 10,325,771
LONG-TERM LIABILITIES
Capital lease obligations 1,373,532 1,412,880
------------- -------------
1,373,532 1,412,880
UNRELATED INVESTORS'INTEREST
IN SUBSIDIARY 21,848 24,162
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, par value $.10 per share,
authorized 975,000,000 shares, issued and
outstanding 648,671,008 at Jun. 30, 1999 and
420,773,568 at Dec. 31, 1998 64,867,101 42,077,357
Additional paid-in capital 86,273,029 92,725,285
Notes receivable issued for common stock - related party 0 (25,000)
Warrants 6,396,994 6,396,994
Accumulated deficit (157,566,786) (143,101,880)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (29,662) (1,927,244)
-------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDER' EQUITY (DEFICIT) $ 17,230,297 $ 9,835,569
============= =============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>3
<TABLE>
BIOCONTROL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the six months ended For the three months ended
Jun. 30, Jun. 30,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues
Sales $ 78,428 $ 933,441 $ 51,108 $ 475,736
Interest income 60,758 60,594 34,052 15,116
Other income 14,397 0 7,630 0
-------------- -------------- -------------- --------------
153,583 994,035 92,790 490,852
Costs and expenses
Cost of products sold 132,991 498,860 66,572 229,880
Research and development 2,154,759 4,013,632 1,410,914 1,360,098
Selling, general and administrative 8,132,276 5,937,153 5,688,833 4,058,399
Warrant extensions - Subsidiary 0 1,870,000 0 1,870,000
Interest expense 194,253 205,658 53,490 112,851
Beneficial convertible debt feature 4,006,524 2,631,071 3,060,794 670,833
-------------- -------------- -------------- --------------
14,620,803 15,156,374 10,280,603 8,302,061
-------------- -------------- -------------- --------------
Loss before unrelated investors' interest (14,467,220) (14,162,339) (10,187,813) (7,811,209)
Unrelated investors' interest in net loss
of subsidiary 2,314 1,032,005 (21,848) 967,377
-------------- -------------- -------------- --------------
Net loss ($14,464,906) ($13,130,334) ($10,209,661) ($6,843,832)
============== ============== ============== ==============
Loss per common share ($0.03) ($0.06) ($0.02) ($0.03)
============== ============== ============== ==============
See notes to consolidated financial statements.
</TABLE>
<PAGE>4
<TABLE>
BIOCONTROL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the six months ended For the three months ended
Jun. 30, Jun. 30,
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Cash flows used by operating activities:
Net loss ($14,464,906) ($13,130,334) ($10,209,661) ($6,843,832)
Adjustments to reconcile net loss to net
cash used by operating activities :
Depreciation and amortization 880,777 768,884 439,228 423,567
Reduction in goodwill 2,000,000 0 2,000,000 0
Unrelated investors' interest in subsidiary (2,314) (1,032,005) 21,848 (967,377)
Warrants granted by subsidiary 496,536 0 496,536 0
Warrant extensions by subsidiary 0 1,870,000 0 1,870,000
Debenture interest converted to stock 22,070 72,665 22,070 53,800
Premium for extention on debenture 0 680,500 0 680,500
Beneficial convertible debt feature 4,006,524 2,631,071 3,060,794 670,833
Acquistion of ICTI 0 621,517 0 871,517
Stock issued in exchange for services 64,463 (17,688) 0 7,499
(Increase) decrease in receivables (20,470) 314,221 (14,886) 218,869
(Increase) decrease in inventories 73,945 (30,941) 69,068 2,800
(Increase) decrease in prepaid expenses 21,103 (16,833) (23,950) 4,913
(Increase) decrease in other assets (355,810) (4,469) (350,000) 4,074
(Decrease) increase in accounts payable (1,096,090) 698,817 (290,317) 841,682
Increase in other liabilities (466,053) 422,969 (364,156) 489,141
(Decrease) increase in allowance for related party recv. (19,803) (1,743) (847) (1,743)
Impairment loss 283,208 0 283,208 0
-------------- -------------- -------------- --------------
Net cash flow (used) by operating activities (8,576,820) (6,153,369) (4,861,065) (1,673,757)
-------------- -------------- -------------- --------------
Cash flows from investing activities:
Disposal of property, plant, and equipment 175,000 0 0 0
Purchase of property, plant and equipment (121,038) (784,082) (112,274) (48,118)
(Increase) in notes receivable (49,341) (825,050) (51,975) (175,050)
(Increase) in interest receivable (22,345) (33,844) (802) (19,212)
Deposit on equipment (45,547) 0 (12,738) 0
Acquisition of ICTI 0 (1,030,000) 0 (1,030,000)
-------------- -------------- -------------- --------------
Net cash provided (used) by investing activities (63,271) (2,672,976) (177,789) (1,272,380)
-------------- -------------- -------------- --------------
Cash flows from financing activities:
Proceeds from public offering 19,361,418 6,945,000 13,591,418 1,725,000
Payments on notes payable (443,558) (528,634) (154,714) (374,474)
Payments on capital lease obligations (67,484) (54,553) (33,091) (28,781)
-------------- -------------- -------------- --------------
Net cash provided by financing activities 18,850,376 6,361,813 13,403,613 1,321,745
-------------- -------------- -------------- --------------
(Decrease) increase in cash and equivalents 10,210,285 (2,464,532) 8,364,759 (1,624,392)
-------------- -------------- -------------- --------------
Cash and equivalents, beginning of period 125,745 2,759,067 1,971,271 1,918,927
-------------- -------------- -------------- --------------
Cash and equivalents, end of period $10,336,030 $ 294,535 $10,336,030 $ 294,535
============== ============== ============== ==============
See notes to consolidated financial statements.
</TABLE>
BIOCONTROL TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - Basis of Presentation
The accompanying consolidated financial statements of
Biocontrol Technology, Inc. (the "Company") and its 89.9%
owned subsidiary, Coraflex, Inc., and its 52% owned
subsidiary, Diasense, Inc., and its 67% owned subsidiary,
Petrol Rem, Inc., and its 99.1% owned subsidiary, IDT, Inc.,
and its 58.4% owned subsidiary, ICTI, Inc., have been prepared
in accordance with generally accepted accounting principles
for interim financial information, and with the instructions
to Form 10-Q and Rule 10-O Regulation S-X. Accordingly, they
do not include all of the information and footnotes required
by generally accepted accounting principles for complete
financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been
included. For further information, refer to the consolidated
financial statements and footnotes included in the Company's
annual report on Form 10-K for the year ended December 31,
1998.
NOTE B - Net Loss Per Common Share
Net loss per common share is based on the average number of
outstanding common shares. The loss per share does not
include common stock equivalents since the effect would be
anti-dilutive. The weighted average shares used to calculate
the loss per share for the period ending June 30, 1999, and
June 30, 1998, were 535,289,451 and 202,083,594, respectively.
NOTE C - Stockholders Equity
During the six months ended June 30, 1999, the Company raised
$19,361,418 in connection with its public offering. (See
"Management's Discussion and Analysis").
The Company's common stock is currently traded on the
electronic bulletin board.
NOTE D - Goodwill
The company recognized $5,310,501 of goodwill in connection
with a Stock Purchase Agreement dated February 20, 1998 to
acquire 58.4% of International Chemical Technologies, Inc.
For purposes of amortizing this goodwill, Management has
determined a useful life of 5 years. In the quarter ended
June 30, 1999, management recorded a charge of $ 2,000,000
based upon a reevaluation of goodwill.
NOTE E - Legal Proceedings
During April 1998, the Company and its affiliates were served
with subpoenas by the U.S. Attorneys' office for the U.S.
District Court for the Western District of Pennsylvania. The
subpoenas requested certain corporate, financial and
scientific documents and the Company continues to provide
documents in response to such requests.
On April 30, 1996, a class action lawsuit was filed against
the Company, Diasense, Inc., and individual officers and
directors. The suit, captioned Walsingham v. Biocontrol
Technology,etal., has been certified as a class action, and is
pending in the U.S. District Court for the Western District of
Pennsylvania. The suit alleges misleading disclosures in
connection with the Noninvasive Glucose Sensor and other
related activities which the company denies. By mutual
agreement of the parties, the suit remains in the pre-trial
pleading stage, and the Company is unable to determine the
outcome or its impact upon the Company at this time.
NOTE F - Year 2000 Issue
The Company is currently working to resolve the potential
impact of the Year 2000 on the processing of date-sensitive
information. The Year 2000 Issue is the result of computer
programs being written using two digits (rather than four) to
define the applicable year. Programs which are susceptible to
problems after December 31, 1999 are those which recognize a
date using "00" as the year 1900 rather than the year 2000,
which could result in miscalculations or system failures.
Based upon a review of its own internal programs and software,
the Company currently believes that the Year 2000 will not
pose significant operational problems to its information
systems, because such systems are already compliant. In
addition, ChaseMellon Shareholder Services, the Company's
transfer agent, has disclosed that it will be Year 2000
compliant and that no interruptions in service will occur. The
Company's common stock currently trades on the electronic
bulletin board; Nasdaq and its parent, the NASD, have analyzed
their products and systems; are addressing their Year 2000
issues; and are implementing a plan to test their systems and
to remediate any Year 2000 problems. As of this date, Nasdaq
has not made a definitive statement regarding when it will be
compliant, but has stated that it is making all necessary
changes to its trading systems. The Company's current
estimates indicate that the costs of addressing potential
problems are not expected to have a material impact upon the
Company's financial position, results of operations or cash
flows in future periods. There can be no assurance, however,
that modifications to information systems which impact the
Company and which are required to remediate year 2000 issues
will be made on a timely basis and that they will not
adversely affect the Company's systems or operations.
Management's Discussion and Analysis of Financial Condition
and Cash Flows
Liquidity and Capital Resources
Cash increased from $ 125,745 at December 31, 1998 to $
10,336,030 as of June 30, 1999 attributable to proceeds of $
19,361,418 from the Company's public offering and to the
Company's $ 8,576,820 net operating expenditures.
During the second quarter, three of the Company's officers,
Fred E. Cooper, Anthony J. Feola and Glenn Keeling, converted
their outstanding amounts due to the Company to term loans.
Repayments to the Company began in May 1999.
Results of Operations
Sales during the second quarter decreased from $475,736 in
1998 to $51,108 in 1999 and decreased for the six-month period
from $933,441 in 1998 to $78,428 in 1999. The decreases were
due to the discontinuation of the Companys FES project.
Interest income increased during the second quarter from
$15,116 in 1998 to $34,052 in 1999 and increased for the six-
month period from $60,594 in 1998 to $60,758 in 1999. The
fluctuations were due to the Company's varying amounts
available to invest in each of those periods.
Costs of Products Sold during the second quarter decreased
from $229,880 in 1998 to $66,572 in 1999 and decreased for the
six month period from $498,860 in 1998 to $132,991 in 1999.
The decreases were primarily due to the suspension of FES
activities.
Research and Development expenses during the second quarter
increased from $1,360,098 in 1998 to $1,410,914 in 1999 and
decreased for the six month period from $4,013,632 in 1998 to
$2,154,759 in 1999. The second quarter increase was due to
additional activity in connection with the sensor project.
Selling, General and Administrative expenses during the second
quarter increased from $4,058,399 in 1998 to $5,688,833 in
1999 and increased for the six month period from $5,937,153 in
1998 to $8,132,276 in 1999. The increase from 1998 to 1999
was due to goodwill expenses related to the ICTI acquisition.
During 1999, the Company revisited its ICTI operations and
determined that the product may not exhibit all of the
properties needed for commercial success. In connection with
such analysis, the Company deiscovered a different metal-
coating process which may have the potential to succeed, and
is pursuing the feasibility of manufacturing and selling that
product. As a result, the Company has begun to write down the
goodwill associated with the ICTI purchase.
Interest expense during the second quarter decreased from
$112,851 in 1998 to $53,490 in 1999 and decreased for the six
month period from $205,658 in 1998 to $194,253 in 1999. The
decreases were due to the Company's efforts in acquiring
capital through 4% convertible debentures and to Notes Payable
in connection with the acquisition of ICTI.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
(B) Reports on Form 8-K
(1) A report on form 8-K dated May 24, 1999, with
respect to Item 5 other events and Item 7 (c),
Exhibit.
(2) A report on form 8-K dated June 24, 1999, with
respect to Item 5 other events. and Item 7 (c),
Exhibit.
(3) A report on form 8-K dated July 1, 1999, with
respect to Item 5 other events and Item 7 (c),
Exhibit.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned
thereunto duly authorized on this 15th day of August, 1999.
BIOCONTROL TECHNOLOGY, INC.
By /s/ Fred E. Cooper
Fred E. Cooper
CEO
